Decision Tree and Problem Solutions

Information for Questions:

You are considering the decision to purchase a machine for internal production or to subcontract the work to an external source. The following information has been provided by your financial managers:

Cost to purchase the machine = $35000

Cost to subcontract the work = $5000

Probability of good market = 70%

Probability of poor market = 30%

Reward if the prediction occurs: in the purchase machine decision, the good market scenario - $80000; in the poor market scenario - $30000. If the Subcontract decision good market scenario - $50000; in the poor market scenario $15000

1) For the design and development of a new plane, Boeing identifies four categories of risks which are shown in the left column below. In the right column are four possible mitigation strategies for the four categories. Select one and only one mitigation strategy.

1) Financial Risks	a) Extensive testing of new parts before they go into generation plane. Testing could result in a next generation plane or new plane
2) Marketing Risks	b) Having firm orders for several planes before manufacturing begins
3) Technical Risks	c) Asking suppliers to share in the development costs for the new plane
4) Manufacturing Risks	d) Offering a family of planes (737, 747, 767, 777, and 787)